The activities of several enzymes which metabolize xenobiotics were measured and compared in freshly isolated rabbit Clara cells (50-70% purity) and alveolar type II cells (80-95% purity) or microsomal preparations from the isolated cell fractions. The presence of 1 mM nicotinamide in protease and cell isolation buffers increased significantly 7-ethoxycoumarin (7-EC) deethylase and epoxide hydrolase activities in the isolated Clara and type II cells. Isolated Clara cell fractions metabolized 7-EC to umbelliferone at a rate of 241 +/- 27 pmoles/mg prot/min (mean +/- S.E., N =5), while the 7-EC deethylation rate in type II cells was 111 +/- 15 pmoles/mg prot/min. Coumarin hydroxylation activity, however, was more than ten times greater in the Clara cells than in the type II cells on a per mg cellular protein basis. N-oxidation of N,N-dimethylaniline, catalyzed by a flavin monooxygenase, was about 2 times as great in microsomes of Clara cells as in microsomes of type II cells. Epoxide hydrolase activity with benzo(a)pyrene 4,5-oxide as substrate was about 10 times higher in Clara cells than in type II cells. Because of the greater cellular, structural and functional heterogeneity in lung, differential distribution of enzymes responsible for xenobiotic metabolism in this tissue may contribute to cell selective chemical toxicity and carcinogenesis.